Correlation Between Chipotle Mexican and Sea

Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and Sea at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Chipotle Mexican and Sea into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chipotle Mexican Grill and Sea, you can compare the effects of market volatilities on Chipotle Mexican and Sea and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Chipotle Mexican with a short position of Sea. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and Sea.

Diversification Opportunities for Chipotle Mexican and Sea

0.64

Correlation Coefficient

Chipotle Mexican  Sea

Poor diversification

The 3 months correlation between Chipotle and Sea is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea and Chipotle Mexican is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Chipotle Mexican Grill are associated (or correlated) with Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and Sea go up and down completely randomly.

Pair Corralation between Chipotle Mexican and Sea

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to under-perform the Sea. But the stock apears to be less risky and, when comparing its historical volatility, Chipotle Mexican Grill is 1.53 times less risky than Sea. The stock trades about -0.33 of its potential returns per unit of risk. The Sea is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  10,939  in Sea on October 23, 2024 and sell it today you would earn a total of  569.00  from holding Sea or generate 5.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Chipotle Mexican Grill  vs.  Sea

Chipotle Mexican Grill

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chipotle Mexican Grill has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Chipotle Mexican is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sea

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chipotle Mexican and Sea

The main advantage of trading using opposite Chipotle Mexican and Sea positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chipotle Mexican position performs unexpectedly, Sea can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Sea will offset losses from the drop in Sea's long position.

The idea behind Chipotle Mexican Grill and Sea pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.